Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine

“Profit First is a brilliant smack-upside-the-head revelation for entrepreneurs. Most small businesses look pretty good on the outside, yet actually struggle to stay afloat. With fascinating stories and wit, Michalowicz shows how to remove your nose from the grindstone, climb out of the quicksand, and build a business that loves you back.”
—SALLY HOGSHEAD, author of Fascinate

“Profit First may arguably be one of the greatest ‘hacks’ of all time. Apply the pay-yourself-first principle to your business and watch the profits roll in.”
—CHRIS GUILLEBEAU, author of Born for This and The $100 Startup

"Profit First is a game-changer. I implemented the system into both of my businesses and increased profits by 21%. If you want to turn a profit and grow your business, you need this book."
—MICHAEL PORT, author of Steal the Show

"Profit First completely transformed how I handle business banking. I hadn't even finished the book before immediately putting a four-account distribution system in place for new income: operating expenses, owner expenses, taxes and profit. Mike's system moved me from break-even to profitable within a month. This book is a must-read for businesses large and small."
—JENNY BLAKE, author of Pivot

“Twenty-five percent of small businesses have two weeks or less of cash in the bank. Seventy-five percent of businesses have a month or less of cash in the bank. Profit First disciplines show you the roadmap to avoid becoming a statistic. This book has the potential to change the next 20 years of your small business life.”
—DAWN FOTOPULOS, Associate Professor of Business, The King’s College NYC; author of Accounting for the Numberphobic

“Profit First is a revelation. I only wish I knew about this system when I started my first business.”
—JOHN JANTSCH, author of Duct Tape Marketing and SEO for Growth

“Entrepreneurs commonly confuse cash flow with profitability. Profit First makes the process so radically simple that you no longer have an excuse not to be profitable AND have cash flow!”
—GREG CRABTREE, author of Simple Numbers, Straight Talk, Big Profits

“Not only is Mike one of the most innovative small business authors of our time, his Profit First system—simple to apply and impactful in its results—can be the difference between constantly walking the financial tightrope or being predictably profitable. And a predictably profitable business is not only less stressful and more gratifying, it allows you to focus on what really matters… serving your customers!”
—BOB BURG, coauthor of The Go-Giver and The Go-Giver Leader

"Why are so few businesses actually profitable for their owners? Profit First turns accepted wisdom on its head and shows the real reason business owners struggle with the bottom line. This book shows you how to take home more money almost immediately."
—DORIE CLARK, author of Stand Out

“Finance is the top headache of an entrepreneur. Profit First is a must-read to avoid bankruptcy for great business ideas. Clever, easy to implement and absolutely effective (plus you will enjoy reading it).”
—SOFIA MACIAS, author of Pequeño Cerdo Capitalista

“Entrepreneurs and small business advisors finally have a practical toolkit for increasing profitability! Everyone who touches the small business world should read and apply these game-changing principles.”
—JOE WOODARD, CEO of Woodard Events and Woodard Consulting

“I took the pledge and started implementing the Profit First system after reading Chapter One. By the time I was halfway through the book my business had already turned a profit.”
—BARRY MOLTZ, author of How to Get Unstuck
About the Author
MIKE MICHALOWICZ launched and sold two multi-million dollar companies and is co-founder of Profit First Professionals, a membership organization of accountants, bookkeepers and business coaches who teach the Profit First method. He is a former columnist for The Wall Street Journal, is a popular speaker and has shared his insights on business and entrepreneurship at TEDx, creativeLIVE, INCmty and others. He is the author of The Pumpkin Plan and The Toilet Paper Entrepreneur. His columns have appeared in Entrepreneur Magazine, Open Forum, and Harvard Business Review.
Excerpt. © Reprinted by permission. All rights reserved.
Chapter 1

Your Business Is an Out-of-Control Cash-Eating Monster

No matter how many years you've been at the grind, you are probably well aware of the statistic that roughly 50 percent of businesses fail within the first five years. What they don't tell you is that those failed entrepreneurs are, in fact, the lucky ones! The majority of the businesses that survive are racking up debt, and their leaders are perpetually stressed. Most entrepreneurs are living a financial nightmare, one that's populated by Freddy Krueger or Frankenstein's monster in its raw, unadulterated scariness. In fact, I am convinced that I am Dr. Frankenstein.

If you read Mary Shelley's classic, Frankenstein, you know exactly what I'm talking about. The good doctor reanimated life. From mismatched body parts, he stitched together a living being more monster than man. Of course his creation wasn't a monster at first. No, at first it was a miracle. Dr. Frankenstein brought to life something that, without his extraordinary idea and exhaustive hard work, could not exist.

That's what I did. That's what you did. We brought something to life that didn't exist before we dreamed it up; we created a business out of thin air. Impressive! Miraculous! Beautiful! Or at least it was until we realized our creation was actually a monster.

Stitching together a business with nothing but a great idea, your unique talents, and whatever few resources you have at hand is most certainly a miracle. And it feels like one, too, until the day you realize your business has become a giant, scary, soul-sucking, cash-eating monster. That's the day you discover that you, too, are an esteemed member of the Frankenstein family.

And just as happened in Shelley's book, mental and physical torment ensues. You try to tame the monster, but you can't. The monster wreaks destruction at every turn: empty bank accounts, credit card debt, loans, and an ever-increasing list of "must-pay" expenses. He eats up your time, too. You wake up before sunrise to work, and you're still at it long after the sun goes down. You work and work, yet the monster continues to loom. Your relentless work doesn't free you; it further drains you. Trying to keep the monster at bay before it destroys your entire world is exhausting. You suffer sleepless nights, worries about collection calls-sometimes from your own employees-and a near-constant panic about how to cover next week's bills with a few dollars and the lint in your pocket. Didn't you start a business so you could be your own boss? Now it looks as though this monster is the boss of you.

If you think operating your business is closer to a horror story than to a fairy tale, you're not alone. Since I wrote my first book, The Toilet Paper Entrepreneur, I've met tens of thousands of entrepreneurs; and let me tell you, most are struggling to tame the beast that is their business. Many companies-even those that appear to have it all together, even the big guys who seem to dominate their industries-are one bad month away from total collapse.

My own wake-up call came in the form of my daughter's piggy bank.

The Piggy Bank That Changed My Life

I lost my way the day I received a check for $388,000. It was the first of several checks I would receive for the sale of my second company-a multimillion-dollar computer forensic investigations business I had cofounded-to a Fortune 500 firm. I had now built and sold two companies, and that check was all the proof I needed that my friends and family were right about me: When it came to growing businesses, I had the Midas touch.

The day I received the check, I bought three cars: a Dodge Viper (my college-fantasy dream car, and what I have subsequently found many people identify as the "that-guy-must-have-a-tiny-penis" car), something I'd promised I would get for myself "one day" when I'd "made it," a Land Rover for my wife, and a spare-a tricked-out BMW.

I had always believed in frugality, but now I was rich (with an ego to match). I joined the private club: the one where, the more money you give, the higher they place your name on the members' wall. And I rented a house on a remote Hawaiian island so my wife, my children, and I could spend the next three or so weeks experiencing what our new lifestyle would be like. You know, "how the other half lives."

I thought it was time to revel in the money I had created. What I didn't know was that I was about to learn the difference between making money (income) and taking money (profit). These are two very, very different things.

I launched my first business on ambition and air, sleeping in my car or under conference room tables in order to avoid the cost of hotels when visiting clients. So imagine the surprised look from my wife, Krista, when I asked the sales guy at the dealership for "the most expensive Land Rover you have." Not the best Land Rover. Not the safest Land Rover. The most expensive Land Rover. He skipped his way to the manager, doing a giddy hand clap.